Accountancy sector braced for surge in post-Brexit AML regulation

These findings are based on a survey of over 875 compliance professionals operating across the real estate, banking, accountancy, lending, wealth management and legal sectors and seek to showcase how businesses are coping with the current AML framework.

This extra regulatory burden would come at a time when compliance professionals are already showing signs of struggling to comply with current AML regulations, including the Fifth Money Laundering Directive that came into force in January last year.

Research shows that the accountancy sector is, on average, only 60% of the way towards reaching compliance with the Fifth Money Laundering Directive, despite having had over 12 months to become so. This leaves the sector exposed to money laundering breaches, regulatory fines and reputational damages, all of which should, of course, be avoided.                             

Tellingly, over three-quarters (ie 79%) of compliance professionals across the seven sectors surveyed believe that a regulatory clampdown is coming within the next 12 months, with almost half of them believing that situation could materialise within six months.

In anticipation of potential further post-Brexit regulatory commitments, the accountancy sector has unanimously called on the regulator for further guidance in implementing effective AML programmes, with 87% of compliance professionals in the industry agreeing with the premise that the regulator should provide better guidance.

The absence of clear guidance from the regulator may also explain the accountancy sector’s lack of faith in the Fifth Money Laundering Directive compared to other regulated sectors. Almost half (43%) said they expect the Fifth Money Laundering Directive to have no impact on their ability to prevent and detect financial crime. This is notably higher than the one third (32%) of respondents across other sectors who are of the same opinion.

Regulatory burden

Nina Kerkez, director of UK and Ireland consulting at LexisNexis Risk Solutions, commented: “The regulatory burden of AML compliance, including the requirements of the Fifth Money Laundering Directive, is hugely challenging for all industries, but it appears that compliance professionals in the accountancy industry feel like they’ve been cast adrift by the regulator at a critical time in proceedings.”

Kerkez added: “The industry’s fraught progress with the Fifth Money Laundering Directive appears symptomatic of a lack of guidance from the regulator on the correct way to implement the requirements, as well as perhaps a general feeling of being overwhelmed by the sheer extent and complexity of what’s now expected in terms of the forensic levels of investigation required by a risk-based approach to AML.”

Further, Kerkez stated: “It seems what’s needed is a strong regulatory/industry collaborative partnership whereby all regulatory and supervisory bodies can work closely together to resolve these educational gaps and make better progress towards their AML implementation. If firms’ predictions about the post-Brexit regulatory clampdown prove to be accurate, this needs to happen sooner rather than later.”

According to Kerkez, with such a high number of accountancy compliance professionals showing scepticism for the impact that the Fifth Money Laundering Directive will have on financial crime detection, the regulator also appears to have some influencing work to do to better demonstrate the tangible benefits of this if they want to see better progress being made towards implementation.

“Additionally,” concluded Kerkez, “regulatory bodies could do more to advise firms on how investment in technology can enhance the fight against financial crime. By automating and streamlining customer due diligence and investigations processes, for example, they would free-up the time of skilled professionals to focus on robust risk-based activities that will really make a difference. Technology can not only better equip firms to mitigate the risks facing them, but also enables them to fulfil their duty to protect wider society.”

The research involved compliance professionals from the property, banking, accountancy, lending, wealth management and legal sectors. Respondents were surveyed in March this year.